UDITA GUPTA,DELHI V. ACIT CENTRAL CIRCLE-29, NEW DELHI

ITA 2017/DEL/2019

AI Insights

The case involves Udita Gupta, the appellant, who contested the additions made by the Assessing Officer under section 68 of the Income Tax Act, 1961, regarding capital gains from the sale of shares deemed as penny stocks. The shares in question were of M/s Trinity Tradelink Ltd. and M/s CCL International Ltd. The Assessing Officer and the CIT(A) had earlier upheld the additions, citing that the shares were part of a scheme to convert unaccounted cash into capital gains. However, the Tribunal, referencing decisions from similar cases, found that the shares were not penny stocks and that the transactions were genuine, thus allowing the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 776794 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2025
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 07-03-2019
• Other Referred Cases: Sanjay Bimalchand Jain v. Pr. CIT-1, Nagpur, Jyoti Gupta vs. ACIT, Rachana Gupta vs. ACIT, Anil Prastogi vs. ITO, Ziauddin A Siddique vs. Pr. CIT, Krishna Devi vs. Pr. CIT, Suman Poddar vs. ITO, Sumati Dayal vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Court: TRIBUNAL
• Department Lawyers: SHRIHARPREET KAUR HANSRA
• Assessee Lawyers: SAUBHAGYA AGARWAL
• Keywords: Question of law; Income from undisclosed sources; Capital Gains; Principle of natural justice; Accommodation entries; Penny stocks; Bogus
• Section: 143(3); 68; 133(6)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH‘F’: NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI KRINWANT SAHAY, ACCOUNTANT MEMBER ITA No.2017/Del/2019 (ASSESSMENT YEAR-2014-15) Udita Gupta C/o, Ravi Gupta, Advocate, E-6A, Kailash Colony, New Delhi-110048. PAN-ADVPA9481B Vs. ACIT, Circle Circle-29, New Delhi. (Appellant) (Respondent) Assessee by Shri Saubhagya Agarwal, Adv. and Shri Vaibhav Srivastava, Adv. Department by ShriHarpreet Kaur Hansra,Sr.DR Date of Hearing 18/08/2025 Date of Pronouncement 17/09/2025 ORDER PER ANUBHAV SHARMA, JM: Thisappeal is preferred by the assessee against the order dated 27.07.2018 passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by Commissioner of appeal -30, New Delhi arising out of order dated 28.12.2016 made by Assessing Officer(hereinafter referred as ‘the AO’) u/s 143(3) of the Act for Asst. Year 2014-15. 2. Heard and perused the record. Brief facts of the case are that the case of the assesse was picked up for limited scrutiny and during the assessment proceedings, the assessee’s claim of earning capital gain amounting to Rs.1,11,03,437/- from sale of shares of M/s Trinty Tradelink Ltd. and M/s CCL International Ltd. were examined. The Ld. Assessing Officer has found the claims to be not genuine and considered these scrip to be penny stock and Printed from counselvise.com 2 ITA No.2017/Del/2019 Udita Gupta vs. ACIT disallowed the claim making addition u/s 68 of the Act which was sustained by Ld. CIT(A) with following conclusions: “I find that the appellant had made investment in shares of little known companies. The Income Tax Investigation Authorities (and SEBI) have made detailed enquiries to establish that the persons connected with M/s CCL International Limited and M/s Trinity Tradelink Ltd., were systematically involved in the activity of converting unaccounted cash into long term/short term capital gain. It is also noted that the appellant had purchased shares at a very less price and has shown to have sold those shares at a very high price within a span of around one year or more. There is no basis for the prices of shares of an unknown entity rising to such extraordinary levels without any perceptible (or apparent or actual) improvement in the working of the company. The appellant has not tendered any cogent evidence to explain how the shares of a lesser known company worth such less value rose to such high price in so less time. I find that there is no economic or fundamental basis for the shares of such company to reach such fantastic level of price. (This analysis is applicable for both the companies). While arriving at this inference, I find support from Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain v. Pr. CIT-1, Nagpur (189 taxmann.com 196(Bombay)). I also note that none of the case laws relied upon by the appellant counter the fact that the appellant did not know how did the shares of a little known company, without any matching improvement in performance (or even having any fundamentals to speak of), rose to such fantastic level. The rise of share prices of an unknown company (in this case the two companies have shown such trend), defies human limits of probability. As such, the case laws relied upon by the appellant are not relevant The enquiries made by SEBI and the Investigation Authorities and the surrounding circumstances establish beyond doubt that this is a case where unaccounted income has been converted into capital gains in a bogus manner to show income in the garb of Short Term Capital Gain/ Long Term Capital Gain. Accordingly, I uphold the addition made by the AO.” 3. Now assessee is in appeal before us raising following grounds of appeal: “1. That on facts and in circumstances of the case and in law, Ld. CIT(A) erred in sustaining the action of the Ld. AO. 2. That on facts and in circumstances of the case and in law, Ld. CIT (A) has erred in confirming the order passed u/s 143(3) by the Ld. AO despite the fact that the Ld. AO has travelled beyond the scope of notice u/s 143(2) asthis is a LIMITED SCRUTINY matter. 3. That on facts and in circumstances of the case and in law, Ld. CIT(A) erred in sustaining the addition of Rs.1,19,89,937/- under section 68 of the Act treating the gain accrued on the shares of Trinity Tradelink Ltd. and CCL International Ltd., as bogus. 4. That the Ld. CIT(A) mechanically addressed the concern of the assessee that Ld. Assessing Officer had passed the assessment order in violation of principles of natural justice and relied upon the material collected at the back of the assessee without offering an opportunity to cross examine. 5. That the Ld. CIT(A) erred in sustaining the action of the Ld. AO ignoring that additions were made without bringing on record any legally admissible evidence. 6. That the Ld. CIT(A) erred in sustaining the action of the Ld. AO ignoring that additions were made without brining on record any legally admissible evidence. 7. That the Ld. CIT(A) erred in sustaining the action of the Ld. AO without appreciating that by filing legally admissible evidence as much as contract note, DEMAT A/c, payment of STT, appellant had discharged the burden cast upon it under the Act. Printed from counselvise.com 3 ITA No.2017/Del/2019 Udita Gupta vs. ACIT 8. That the impugned assessment order is arbitrary, illegal, bad in law and the violation of rudimentary principle of contemporary jurisprudence. 9. That the appellant craves leave to add, amend, alter, vary and/or withdraw any or all the above grounds of appeal before or at the time of hearing of the appeal.” 4. Heard both the parties and perused the materials available on record. 5. Now, with regard to two scrip involved, the Ld. AR has relied that the decision of the Co-ordinate Bench in the case of Jyoti Gupta vs. ACIT in ITA No.5419/Del/2018 for Assessment Year 2014-15 and in ITA No.2528/Del/2022 for Assessment Year 2016-17 whereby the order dated 06.11.2024, the Co-ordinate Bench has held the above said scrips to be a not penny stock. In fact, we further find that further in the case of Rachana Gupta in ITA No.5418/Del/2018 for Assessment Year 2015-16 and ITA.2531/DEL/2022 Assessment Year: 2016-17,the Co-ordinate Bench, in which one us, Judicial Member is also in quorum, vide order dated 20.12.2024 has also taken in consideration scrip, M/s CCL International Ltd and benefited the assessee holding that transactions of the assessee are not tainted. The Ld. AR has pointed out that these parties Jyoti Gupta and Rachna Gupta are in fact related to the assessee Udita Gupta. 6. The Ld. DR has relied on the decision of Co-ordinate Bench in ITA No.3809/Del/2018 appeal titled as AnipRastogivs. ITO to submit the same scrips M/s CCL International Ltd. was found to be Penny Stock. It is also submitted that Assessing Officer has rightly relied the statement of assessee as reproduced by the Assessing Officer in the assessment order. 7. Taking into consideration the contention of Ld. Authorized Representatives, we are of the considered view that in the case of Jyoti Gupta (supra), the Co-ordinate Bench vide order dated 06.02.2024 has taken into consideration two scripand the rival contention have been duly reproduced in the said decision. In para 9 to 11, all the aspects have been examined to benefit Printed from counselvise.com 4 ITA No.2017/Del/2019 Udita Gupta vs. ACIT the said assessee and the findings certainly apply mutatis mutandis to the case of assessee also. As for convenience, findings in para 9 to 11 in the case of Jyoti Gupta (supra) are reproduced as under: “Considered the rival submissions and material placed on record. The Assessing Officer observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We cannot agree to the above observation, merely because of huge profit, it does not make the script a penny stock. Further, it is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The assessee has purchased the shares directly from the company and through share transfer from other party, subsequently, sold the same in the stock exchange. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiary in this transactions merely as an investor who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. We observe that the Hon'ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04/03/2022 held as under: - \"1. The following question of law is proposed: \"Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the 1.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of RamkrishnaFincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs.1.03,33,925/-claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the 1. T. Act, 1961?\" 2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of RamkrishnaFincap Ltd. (\"RFL\") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax (\"STT\") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. Printed from counselvise.com 5 ITA No.2017/Del/2019 Udita Gupta vs. ACIT 4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. 6. The appeal is devoid of merits and it is dismissed with no order as to costs.\" 10. Further, the Hon'ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi in ITA 125/2020 dated 15.01.2021 held as under: - \"8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in SumanPoddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in SumatiDayal v. CIT. (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On Printed from counselvise.com 6 ITA No.2017/Del/2019 Udita Gupta vs. ACIT an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that \"There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.\" The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. Printed from counselvise.com 7 ITA No.2017/Del/2019 Udita Gupta vs. ACIT 12 Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on SumanPoddar v. ITO (supra) and SumatiDayal v. CIT (supra) is of no assistance. Upon examining the judgment of SumanPoddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of SumatiDayal v. CIT (supra) too turns ITA 125/2020 and connected matters Page 10 of 10 on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. Accordingly, the present appeals are dismissed.\" 11. Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of Human probabilities and held the above said scrips to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon'ble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the ground raised by the assessee. Accordingly, the grounds raised by the assessee are allowed. 12. In the result, appeal filed by the assessee is allowed.” Printed from counselvise.com 8 ITA No.2017/Del/2019 Udita Gupta vs. ACIT 8. In the light of the aforesaiddiscussion, we are inclined to allow the ground No.3 to 7 of appeal of assessee. In the result, the appeal filed by the Assessee is allowed. Order pronounced in the open court on 17.09.2025. Sd/- Sd/- Sd/- Sd/- (KRINWANT SAHAY) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 17.09.2025 PK/Sr. Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "